Washington Update: The Next Stimulus Bill

U.S. Office of Public Policy, 24 July 2020

This Week:

The Senate approved the nomination of Russ Vought to serve as administrator of the Office of Management and Budget and passed the fiscal year 2021 defense authorization bill. The House approved its own version of the defense authorization bill and passed the first set of its government spending bills for next year.

Next Week:

The Senate will vote on various nominations and begin debate on a fifth "stimulus" bill (see below). The House will vote on government funding bills for next year and an infrastructure package focused on water resources.

Coronavirus-Related Issues

Stimulus 4: the next Stimulus Bill.

We expect the next stimulus bill to pass the Senate in early August, but it could slip into September. Most Senate Democrats support a measure similar to the HEROES Act, the $3.5 trillion package approved by House Democrats in May. Most Senate Republicans favor a scaled-back measure that would target a smaller set of health care and economic recovery needs. President Trump would prefer a more targeted bill as well but is open to spending more money than most Senate Republicans would like. All three sides have leverage so a final product will reflect at least some priorities of all three. We believe a final bill will total approximately $1.5 trillion in new spending.

The McConnell Bill.

We expect Senate Majority Leader Mitch McConnell (R-KY) to unveil the Senate Republicans' bill on Monday or Tuesday of next week. This will be the opening offer in the House-Senate-White House negotiations over the next few weeks. This bill reflects the priorities of most Senate Republicans but is not necessarily representative of a final agreement. The White House and Democratic leaders in the House and Senate have their own priorities that generally will need to be accommodated. House Speaker Nancy Pelosi (D-CA), Senate Minority Leader Chuck Schumer (D-NY), Senate Leader McConnell and President Trump all have considerable leverage in this process, which means a final bill will have to be bipartisan and agreeable to all four.

The following is an overview of key issues we expect to be addressed in a final bill.

  • Funding for schools at all levels to help reopening. This will be one of the more expensive items in the bill. The money will help schools to purchase personal protective equipment, clean their premises more extensively, bolster distance learning capabilities and reopen schools safely. Negotiators will bicker over whether funding should be extended only to schools committed to reopening in the fall, but spending will eventually be made available to all schools regardless of the timing and nature of their reopening. The ball-park cost of this will be around $150 billion. 
  • Limited and temporary liability protection for businesses, schools and other entities to protect them against lawsuits relating to COVID-19 as long as they follow public health guidelines. This is a top priority of Senate Republicans and the business community. Democrats and Republicans will argue over the scope of the federal guidelines that should be followed to qualify for the liability protection but will eventually find middle ground.
  • Extension of enhanced unemployment benefits. The bill likely will include funding for extra benefits to people who are unemployed or recently hired (or possibly both). A previous stimulus bill provided unemployed people an extra payment of $600 per week (on top of the regular unemployment benefit), which expires on July 31. It likely will be replaced by a smaller payment ($400 range). Alternatively (or perhaps in addition to this), lawmakers could extend bonus payments to those who have recently re-entered the workforce. This issue will not be easy to resolve as lawmakers try to address the needs of the nearly 18 million unemployed individuals while not discouraging their return to work. The two parties will fight over the extra payment amount, and this will be one of the more difficult issues to resolve.
  • A new round of direct tax rebate checks to taxpayers. There is growing interest in including another round of tax rebate checks to certain lower- and middle-income individuals and families. However, the new program will be scaled back from earlier stimulus legislation.  The first round of checks applied to individuals making up to $75,000 per year ($150,000 for couples), We believe the next round will lower the threshold to closer to $40,000 (individuals) and $100,000 (couples). 
  • Additional funding for state and local governments and greater flexibility to use $150 billion in funding provided by an earlier stimulus bill. This is a key demand from House and Senate Democrats. The House-passed bill from May included $1 trillion for state and local governments. Senate Democrats want the same amount, but we don't believe that will happen. But, no funding – as most Senate Republicans have insisted on – is not viable either if there is to be a compromise. Senate Democrats have enough leverage to get some amount of funding for state and local governments since their support will be needed to pass a bill. It's possible that state and local funding could be as high as $500 billion in this bill if Democrats continue to make this a hard demand. 
  • Adjustments and improvements to the Paycheck Protection Program (PPP), the popular small business lending program enacted in earlier stimulus legislation. Two big changes to the program are likely to be implemented, including streamlined forgiveness of loans smaller than $150,000 and an allowance for a second PPP loan for the hardest-hit small businesses. Some new funds may be allocated to the program, despite the fact that it currently has a balance of over $100 billion. These provisions will have strong bipartisan support.
  • Testing and Vaccine Development. There are still problems with the quality and availability of testing for COVID-19 on a nationwide basis. Funds will be added to try to enhance testing capacity not only to deal with the current pandemic but for the future as well. Funds are also likely to be included to spur the development of a vaccine as well as prepare for its implementation and distribution, making this the second round of funding for this national effort. No one will object to these provisions.
  • Foreclosure/Eviction Protections. There is interest in extending temporary moratoria on foreclosures and evictions on properties backed by the federal government that were put in place by federal actions and an initial stimulus bill. Democrats would like a long-term extension of foreclosure and eviction protections applicable to all homeowners and renters and not just those covered currently (while about 70% of mortgages are federally guaranteed, under 30% of renters are in federally-backed units) as well as significant financial assistance to struggling renters and borrowers. While some extension of existing protection to homeowners and renters likely will be part of a final stimulus bill, it is likely to be far more modest than what many Democrats are calling for.
  • What could be left out of the bill? At this time, we don't see much support for President Trump's proposals to provide payroll tax relief or a "capital gains holiday." New requested funding for airlines and airport concessionaires face an uphill battle. Most spending included in the House's $3.5 trillion bill will be left out of a final bill. Child care, job training and more money for minority communities will be contentious. None of the Fed facilities will get extra funding.

Passage Scenario. 

Our baseline scenario is that a final deal will be passed first by the Senate and then by the House in early or mid-August. However, obstacles inevitably will arise throughout the process, and that could drag things out into September. Negotiators will make and drop demands along the way and engage in political posturing. It is likely that one side or the other will dig in on various provisions and threaten the passage of any bill. It is even possible that no bill will move forward if members cannot reconcile their differences. Nonetheless, we believe that a vast majority of lawmakers believe another bill is needed and are prepared for a degree of compromise.

The Final Word

Kanye 2020? 

While it remains unclear whether rapper Kanye West is actually running for president or carrying out a publicity stunt for his next album, it does raise an interesting question about what type of impact he could have on the 2020 presidential election and more broadly what impact third parties might have in November. In 2016, third party candidates collected over seven million total votes in the presidential election, just over 5% of the more than 139 million total votes cast for president. It was the largest portion of the vote to third party candidates since 1996 when Ross Perot won 8% of the popular vote. If West does run for president and appears on the ballot in most states, could he surpass the vote share received by third party candidates in 2016? Going by historical trends, probably not. In the past 50 years of presidential elections, every time there has been a significant third party presence (5% or more of the vote), the vote share for third party candidates has decreased the following election. While the past doesn't determine the future, it seems unlikely that West, or any other third party candidate, will be able to gather a significant amount of support in an election that increasingly seems to be a referendum on a sitting president about whom nearly everyone has a strong opinion.